The 4% Rule Is Dead: Here's What to Use Instead in 2026

For decades, the 4% rule has been gospel in retirement planning. Save 25x your annual expenses, withdraw 4% yearly, and your money lasts 30 years.

Simple. Elegant. And increasingly dangerous.

The rule was built on historical data that may not apply to today’s retirees. Here’s what’s changed—and what to do about it.

The Original 4% Rule

In 1994, financial advisor William Bengen analyzed market returns going back to 1926. He found that a 4% initial withdrawal rate, adjusted for inflation, survived the worst 30-year periods in history.

The rule assumes:

• 30-year retirement
• 50/50 stock/bond allocation
• Annual inflation adjustments
• Historical US market returns

Under these conditions, 4% worked. Every time.

So why worry?

What’s Changed

1. Lower Expected Returns

Bond yields in 1994: ~7% Bond yields in 2026: ~4.5%

When Bengen did his analysis, bonds contributed significantly to portfolio returns. Today’s bonds barely beat inflation.

Stock valuations are also elevated. The Shiller PE ratio (a measure of market valuation) sits well above historical averages. High starting valuations historically predict lower future returns.

Research from Morningstar now suggests a 3.3% withdrawal rate may be more appropriate for new retirees.

2. Longer Retirements

Average retirement in 1994: mid-60s to early 80s (~20 years) Potential retirement today: late 50s to mid-90s (40+ years)

FIRE enthusiasts retiring at 40 can’t use a rule designed for 30-year retirements. Forty or fifty years of withdrawals require different math.

A 4% withdrawal over 40 years fails in many historical scenarios. Even 3.5% gets shaky.

3. Sequence of Returns Risk

The 4% rule assumes average returns. But you don’t experience averages—you experience actual sequences.

A 10% drop in year one of retirement is devastating. The same drop in year 20 barely matters.

If you retire into a bear market (like 2000 or 2008), your portfolio may never recover under 4% withdrawals. The math doesn’t care that “stocks always recover eventually.”

Calculate your own retirement needs with our Retirement Calculator to see how different withdrawal rates affect your portfolio longevity.

Better Strategies for 2026

The Variable Percentage Withdrawal

Instead of fixed 4%, withdraw a percentage that varies with portfolio value:

• Portfolio up? Withdraw more (up to a ceiling)
• Portfolio down? Withdraw less (down to a floor)

Example guardrails:

• Standard withdrawal: 4% of current balance
• Ceiling: 5% (good years)
• Floor: 3% (bad years)

This automatically adjusts spending to market conditions, dramatically improving portfolio survival rates.

The Bucket Strategy

Divide your portfolio into time-based buckets:

Bucket 1 (1-3 years): Cash and short-term bonds

• Covers near-term expenses
• No market risk

Bucket 2 (4-10 years): Bonds and conservative investments

• Refills Bucket 1 over time
• Moderate risk

Bucket 3 (10+ years): Stocks

• Long-term growth
• Time to recover from downturns

When markets crash, you spend from Bucket 1 while stocks recover. No forced selling at the bottom.

The Dynamic Spending Model

Adjust spending based on portfolio performance relative to plan:

• On track: Maintain planned spending
• 10%+ above track: Increase spending 5-10%
• 10%+ below track: Cut discretionary spending 10-15%

This creates flexibility while maintaining lifestyle as much as possible.

What Withdrawal Rate Should You Use?

It depends on your timeline:

Retirement Length	Suggested Rate
20 years	4.5%
30 years	3.7%
40 years	3.3%
50 years	3.0%

These are starting points, not guarantees. Adjust based on:

• Your risk tolerance
• Flexibility in spending
• Other income sources (Social Security, pensions)
• Willingness to return to work if needed

Use our Retirement Calculator to model different scenarios.

The Coast FIRE Safety Valve

Here’s an underappreciated strategy: reach Coast FIRE before full retirement.

If your portfolio is large enough that compound growth alone reaches your retirement target, you have options:

• Take lower-stress work
• Go part-time
• Earn just enough to avoid withdrawals during down markets

This flexibility dramatically improves portfolio survival. You’re not locked into withdrawing during the worst possible times.

Calculate your Coast FIRE number with our Coast FIRE Calculator.

Social Security Changes the Math

The 4% rule assumes no other income. But Social Security provides a floor:

• Average benefit: ~$1,900/month
• Starting at 67 (or 70 for larger checks)
• Inflation-adjusted for life

If Social Security covers 40% of your expenses, you only need to withdraw to cover the other 60%. This dramatically reduces sequence risk.

Example:

• Expenses: $60,000/year
• Social Security: $24,000/year
• Needed from portfolio: $36,000/year

A $900,000 portfolio at 4% covers this—instead of $1.5 million for the full amount.

Don’t ignore Social Security in your calculations. It’s more valuable than most people realize.

Flexibility Is the Real Answer

The 4% rule fails because it’s rigid. It assumes you’ll mechanically withdraw the same inflation-adjusted amount regardless of market conditions.

Real retirees adapt:

• Cut travel when markets crash
• Delay the new car
• Pick up part-time work during recoveries
• Spend more freely in good years

This flexibility is worth more than any withdrawal rate optimization.

If you can reduce spending by 15% during downturns and increase it during bull markets, even a 4.5% starting rate becomes survivable over 40 years.

Your Retirement Reality Check

The 4% rule isn’t useless—it’s a starting point. But treating it as gospel in 2026 is risky.

A better approach:

1. Calculate your number using our Retirement Calculator with a more conservative 3.3-3.5% rate

2. Build flexibility into your plan—both spending and income

3. Consider Coast FIRE as a transition phase using our Coast FIRE Calculator

4. Factor in Social Security accurately

5. Plan for variability in withdrawals, not rigid rules

The goal isn’t finding the perfect withdrawal rate. It’s building a retirement that survives whatever markets deliver.

The 4% rule gave us a framework. Now it’s time to evolve beyond it.